Wall Street Fears the Fallout of Diet Drugs
The world is going to hell in a handbasket. And while we shouldn’t look away, consider Wells $treet a momentary respite. Here, we distract ourselves with nonsense.
Like the threat posed to the U.S. economy by diet drugs.
The new class of GLP-1 drugs — Ozempic, Wegovy, Saxenda, Mounjaro (these names!) — is the silliest perceived threat to the capital markets since the Segway promised to change the world.
Corporate America fears it will suffer from America’s slimming corpus, and analysts are hyperventilating like someone binging on an old stash of fen-phen.
“Cannot Believe We Are Discussing Weight Loss Drugs and Solid Waste Volume,” is the title of an analyst report from Stifel which came over the transom this week. The report hypothesizes that if more people take these drugs, they’ll eat less food, which means less trash, and that could eventually be a problem for trash companies. (I thought at first that they were talking about a different kind of solid waste… )
Over at Barclays, they’ve elevated the drugs to Very Big Deal: “We believe the four mega trends/themes that are going to drive market positioning and sentiment over the next several years are Artificial Intelligence, Energy Transition, TMT disintermediation [selling products and services directly to consumers] and GLP-1 weight loss drugs.”
The medications have been fattening up shares of their manufacturers, Novo Nordisk (up more than 40% this year), and Eli Lilly (up over 60%). However, the drugs currently cost about $1,000 a month, and insurance may not cover them for weight loss. Plus, you can only take them by injection. #needles
But don’t let the facts get in the way of a good handwringing.
Bank of America guesstimates that calorie consumption in the U.S. could drop 1%-3%. The entire food supply chain from farm to packing plant to grocery stores and restaurants — with trucks and trains in between — could see a reduction in demand. Ranchers will end up with an oversupply of meat! Ben & Jerry’s could face an existential risk (over my dead body)!
Walmart warned the new diet drugs are already impacting food sales. The retail giant has been comparing the shopping habits of customers who buy the diet drugs at its stores with those who don’t (proof that you’re being tracked). With Ozempic customers, “We do see a slight pullback in overall basket,” chief of US operations John Furner told Bloomberg. “Just less units, slightly less calories.”
“Slightly” could be slightly more serious if you believe that Stifel report on trash volumes. “Some surveys suggest 37% of the adult population would use an approved drug to reduce weight,” the analysts note.
The U.S. currently has around 261 million adults, so if the 37% target turned out to be accurate (i.e., they could afford the drugs), that’s almost 100 million people. Let’s say each person lost 20 pounds. That’s two billion pounds, the equivalent of 10 aircraft carriers. That’s a lotta lost quarter pounders, and a lot fewer quarter pounder boxes.
“Short Fast Food Credit Because of Ozempic, Barclays Says,” screams a headline from Bloomberg. Yes, start picking up credit default swaps on McDonald’s, because anyone who has the wherewithal to spend $1,000 a month on Ozempic clearly goes to McDonald’s.
Meantime, the healthcare industrial complex is under threat. Imagine the horror of cardiologists suddenly forced to sell their vacation homes as our collective weight loss leads to fewer heart problems or strokes. The offices of orthopedic surgeons will empty as fewer people need a new knee — though … hold on. Benchmarks predicts the opposite will happen, as “anecdotal evidence” (uh-oh) suggests “previously very obese individuals over exert,” creating more injuries, not fewer. Thank God.
And just when nephrologists were pleased to read that long-term use of GLP-1 drugs could lead to kidney failure, their hopes are dashed, because “Ozempic Shows Promise Treating Kidney Failure in Blow to Dialysis Firms.”
The threats are everywhere. Apparel retailers will be forced to slash the prices of XXXXXXL clothing. Will anyone need a gym membership, a gastric sleeve, cigarettes, cocaine?!
The diet drugs could even impact real estate. This is not a joke. Well, yes, it is. But not to the analysts at Jefferies, who speculate that “a thinner populace may be more social and look for apartment buildings with more shared spaces and amenities like pools.” (So, a positive for pool contractors, who aren’t having a good year.)
And then there are the poor oil companies. Lighter humans riding in cars and planes will require less fuel. Jefferies claims that if flyers lose 10 pounds, “United saves $80 million.” But it’ll still lose your luggage.
Come to think of it, slimmer humans and less consumption might mean these GLP-1 drugs could positively impact climate change more than billions in taxpayer subsidies for bird-killing windmills or Teslas that (in reality) only last 200 miles on a single charge.
Still, be prepared for the worst. Apparently no corner of the economy can hide.
BofA gets credit for the weirdest tie-in of all:
“Based on existing academic research out of Australia, the UK, and the US, there could be some connection and overlap between obesity prevalence and problem gambling. Prevalence of problem gambling is 1.6 per 100k, and in a downside, we estimate problem gambling could make up 10-30% of all gaming revenue. Bottom line: This implies the usage of GLP-1 could create a 0-4% revenue headwind for US commercial gaming with higher risk for slot machines or regional gaming.”
God forbid we cut down on problem gambling.
I expect many companies will start blaming diet drugs for all kinds of poor performance — “It wasn’t a problem with our business model, it’s just that too many people are spending $1k a month on weight loss.” The chart below shows how many companies are already mentioning GLP-1 drugs on earnings calls. The number has skyrocketed this summer to about 15% of the 1,500 largest firms listed on the S&P.
This will not stand.
But never fear, my fellow investors. No one adapts faster than capitalists. So what if fewer people are buying XXXXXXXL clothing? No problem! The price of smaller-sized clothing will just have to go up! Ranchers will cull their herds again to reduce the meat supply, and meat prices will go up! Airlines will make their seats even smaller to jam in more passengers! Because the only thing more American than a large waistline is a fat profit.
Also… I know how we are, and I have the feeling we won’t lose that much weight. How many people stick with a diet plan, especially if it’s a medication you have to keep taking forever?
“The latest side effect to gain traction is the claim that taking Ozempic or Wegovy could end up making your life incredibly boring by changing your relationship with food,” reads an article in Healthline. It quotes one of the scientists who helped create the drugs, Dr. Jens Holst. He warns that if you like food a lot — and who doesn’t? — and if food is a big part of your social life, the drugs may bum you out.
“Once you’ve been on this for a year or two,” he says, “life is so miserably boring that you can’t stand it any longer and you have to go back to your old life.”
Whew. Good news for problem gambling.
A big thank you to CNBC Newsdesk Manager Tom Rotunno for gathering many of the analyst reports for me. Tom, you know me too well.
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